The government through the Kenya Revenue Authority collect revenue through Taxes. The taxes are mandatory as all taxpayers are required to pay a fair share for development. One of the taxes that taxpayers have to pay is the Turnover Tax.
In this post we highlight more about the Turnover Tax:
- The TOT Rate
- The business that is subject to TOT
- How to compute and Pay TOT
- Penalties for non-compliance.
What’s is the Turnover Tax
Turnover tax is a tax payable by Micro and Small Enterprises (MSME’s) taxpayers running a business in Kenya to the Kenya Revenue Authority. Turnover Tax was present previously but was reintroduced effective of the Enactment of the Finance Act 2019. The Tax became payable effective Jan 2020.
“The Finance Bill proposes to re-introduce turnover tax at the rate of three per cent of the gross receipts of the business payable monthly and is to be paid by any resident person whose gross sales do not exceed Sh5 million annually while the presumptive tax will be maintained as a minimum tax,”
Turnover Tax Rate
Turnover Tax is charged at 3% of the Gross Revenue from a business operation. The tax is charged on the revenue (sales) without netting off the expenses.
More information on the computation of the turnover Tax is illustrated below on the Computations Section of this Post.
Income that is subject to Turnover Tax
Turnover Tax (TOT) is payable by any resident person whose turnover from business does not exceed or is not expected to exceed Kshs 5,000,000 during any year of income.
This means that all businesses not exempted from the Turnover Tax regime should pay the Tax regardless of their nature of operations.
Exemption for Turnover Tax
Not all taxpayers are subject to filing and Payment of the Turnover Tax. Taxpayers that are exempted from paying the turnover Tax include:
- Persons registered for VAT
- Persons with business income of Kshs 5,000,000 and above,
- Employment Income,
- Rental Income,
- Limited Liability Companies,
- Management and Professional Services among others.
- Income Exempted according to the Income Tax Act
The taxpayers are exempted from paying Turnover Tax are subject to other Tax Regimes such as VAT for those whose Revenue is above 5 million, PAYE for Employment income, Rental Income Tax for Rental Property and Corporate Tax for Companies.
Registration for Turnover Tax Obligation
Taxpayers that fall under the Turnover Tax Regime are expected to self-register on the Itax portal voluntarily. This should be done by amending a taxpayer’s PIN details under the income obligation section.
The commissioner of Domestic Taxes is also given powers by the Tax laws to register a Taxpayer forcefully where they fail to register voluntarily.
Computation for Turnover Tax
Turnover Tax is charged at a rate of 3% of the gross revenue. This means that any business that is subject to TOT has to pay 3 shillings to KRA for every 100 hundred shillings they make as sales.
Expenses are not deductible in computing the Turnover Tax one is supposed to pay. This means a person running a Kiosk will not deduct expenses such as rent and other utility bills in arriving at the net amount.
You pay the Taxman first, 3% of revenue then the balance you net the expenses. The only expense that should be netted off is the Presumptive Tax paid for the period. Presumptive Tax is a tax that is payable on Application for a business operating license from the county governments.
A business should prepare and keep proper accounting records to help in the computations of the Taxes. This includes sales receipts, Invoices among other accounting documents. We have an online Training Course on Bookkeeping, enrol today and learn from the comfort of your home.
We also offer Bookkeeping service where we prepare management reports for businesses including the Balance sheet, profit and loss statement and cash flow statement.
Turnover Tax Computation Illustration
XYZ enterprises a sole proprietorship business runs a Business. During the month of January, the sales for the month were ksh 1,000,000. The business had paid for a business license to the county government Ksh 40,000. Compute the Presumptive Tax and Turnover Tax Payable.
Payment for Turnover Tax
Turnover Tax should be filed and paid monthly by 20th of every month. Filing of the Tax should be made online via the Itax portal.
The amount assessed should be paid also on time to avoid accruing interest on the unpaid amount.
Payment should be made via bank deposit to all KRA partner banks, RTGS or via KRA Mpesa Paybill number.
We offer this under our Taxation Services, contact us for the service
Penalties for Turnover Tax
Failure to file and pay Turnover tax by 20th of every month will be penalised. Where a business does not have taxable income in a month it should file nil returns.
Late payment will attract a 5% penalty on the tax due whereas late filing attracts a KSh 5,000 penalty per month.
Wrap-up
The Small and Micro Enterprises were not captured in the Tax net, this tax will, therefore, bring more revenue to the government for development projects.
Compliance with this tax will be enforced by KRA and county governments. This is by ensuring that all businesses as they apply for a trading license, they have first to pay for the presumptive tax. Therefore at that point, the Turnover Tax obligation will be activated on the taxpayers itax account.